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Sunday, 18 August 2013

Telecom Wars: Jedis not Included

There was a headline that grabbed my attention in the Gulf News this weekend that read "Etisalat vs du mobile tariff wars 'cannot continue.'" At first I thought it was a misprint but it indeed justified and sided with the two incumbent telecom operators in the UAE that the rates they charge are unsustainable in the longer term.

The gist of the article was that Etisalat dropped its rates to 24 fils per minute to eleven selected countries for prepaid customers with a one Dirham fee charged per call whereas du is charging 30 fils per minute to nine selected countries with a 50 fils fee per call for prepaid customers.

Image Source: http://photo.net/photodb/photo?photo_id=8718675

The UAE is home to a large expatriate community and with these offers being offered on prepaid plans only, it is largely targeting those at lower income groups in the UAE.

What surprised me though was that the article suggested the telecom operators in the UAE were unsustainable as it may negatively impact their profitability in the long term.

These offers are being offered purely to prepaid customers but surely the telecom operators know that if they don't do their best to offer better rates, they risk losing these customers to services like Skype, WhatsApp and WeChat (the latter two offer voice messaging on their instant-messaging platforms). If, as a telecom operator you want to keep this customer with you, you need to offer lower rates and better services. It is not about du vs. etisalat, it is about du vs. etisalat vs. Skype vs. WhatsApp vs. WeChat vs. BBM vs. Viber vs. whatever else you can think of.

I also assume that for most telecom operators, they don't make the lions share of their profits from prepaid customers. I assume the more profitable customer for most telecom operators would be those with post-paid plans who are being charged higher rates for the very same international calls and many of whom would have fixed data packages.

Just a quick glance at the financials of both telecom operators on their respective websites reveal that Etisalat recorded a net profit of 24% in Q2 / 2013 and a net income of Dhs. 1,519 million for their UAE operations whereas du had a net profit margin of 29.24% with a net income of Dhs. 778 million.

Given the chance, if I was writing or commenting on this story, I would have recognized the fact that the telecom operators have acknowledged the fact that they have competition from Internet-based technologies and in a rush to ensure they don't completely get side-lined, they come with a pricing plan that is affordable to this particular target segment. It would mark a victory and check off a box in that particular telecom providers KPI's and help ensure they made some revenue from that particular segment instead of no revenue.

However, as this shows, any story can have two sides and in this particular case, the other side was demonstrated.